III Semester SM

8/8/2019 III Semester SM

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Module 1

Strategic Management

Wh at is Strategy?

Large-scale, future-oriented plan for interacting wit h th e competitive

environment to ac h ieve objectivesCompany¶s ³game plan´Framework for managerial decisions

It is all about ± w h ere (direction), w h ich &wh at (scope), h ow (advantage)Wh at resources?

LETS LOOK AT FEWSTRATEGY

Wh at is toyota¶s strategy?

Wh at is MTR¶s strategy?

Wh at is t h e strategy of Big Bazaar?

Strategy Vs Long term planning

Strategy has Four Components

First, strategy s h ould include a clear set of long term goals.

Second components are t h at it s h ould define t h e scope of th e firm i.e. t h e types of products t h e firm will serve etc.

Th irdly, a strategy s h ould h ave a clear statement of w h atcompetitive advantage it will ac h ieve and sustain.

Finally, t h e strategy must represent t h e firms¶ internalcontest t h at will allow it to ac h ieve a competitive advantagein th e environment in w h ich it h as c h osen to compete.

Strategy vs tactics

Level of Conduct .

Time Horizon

Periodicity.UncertaintyInformation Needs

Subjective Values

Wh at is Strategic Management?

The set of decisions and actions that resultin the formulation and implementation of

plans designed to achieve a company¶sobjectives.

D imensions of Strategic D ecisions

Strategic issuesRequire top-management decisions

Require large amounts of th

e firm¶s resourcesOften affect t h e firm¶s long-term prosperityAre future orientedUsually h ave multifunctional or multibusiness

consequencesRequire considering t h e firm¶s external environment

Th e Strategy Makers

The ideal strategic management team includesCh ief executive officer (CEO)Product managers

Heads of functional areasThe strategic management team obtains input from

Planning staff Lower-level management and supervisors

Role of CEO Provides long-term directionAssumes ultimate responsibility for firm¶s successSolicits guidance from Board of D irectors

Ch aracteristics of strategic D ecision

1. RareStrategic decisions are not common and h ave noprecedents.2 . Consequential

Strategic decisions involve committing substantialresources of t h e company and h ence a h igh degree of commitment from persons at all levels.3 . Directive

Strategic decisions can serve as precedents from lessimportant decisions and future actions of t h eOrganisations.

M intzberg M odel - the modes of strategic decisions

1. Entrepreneurial Mode

Formulation of strategy is done by a single person in this mode. The focus is onopportunities. Strategy is guided by the founder¶s vision and is characterized by bold decisions. Wipro Infotech .

2. Adaptive ModeThis mode of decisions making is referred to as ³muddling through´. It ischaracterized by reactive solutions rather than a proactive search for newopportunities.Wipro Infotech introducing the sale of customized Personal Computers inresponse to Dell Computers .

3. Planning ModeThis mode of decision-making involves systematic information gathering for situationalanalysis, generating alternate strategies and selection of the appropriate strategy.For Eg. Entry of MN Cs into the automotive markets forced maruti to introducenew brands

Strategic Intent

Strategic intents, refers to t h e intention of a business tocoordinate and drive t h e w h ole of t h e organisation.

A strategic intent is deliberately s h aring an intension toac h ieve t h at future state t h roug h a particular strategy.

Eg. strategic intent of Tata¶s is acquisition and mergers of oth er businesses globally.

Yama h a Motor India w h en announced t h e

launc h of t h e Yama h a FZ-S priced at Rs67,000 w h ich is a 150cc segment, said³Our strategic intent is to providecustomers with stylish variant to suit hisfashion statement and personality ´.

Th ree Levels of Strategy in Organizations

Corporate-Level Strategy :Wh at business are we in?

Corporation

Business-Level Strategy :How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy :How do we support t h e business-levelstrategy ?

Finance R&D Manufacturing Marketing

Strategic management process

What is the strategic management

process ? ± The process by which managers choose ,

implement, and adapt a set of strategies for theenterprise to pursue its vision.

± Distinguish between strategic (what to do ?) ,tactical (how and when to do it ?) and operational(do it now! ) decisions.

V ision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

B enefits of Strategic M anagement

Enhances the firm¶s ability to prevent problems

Emphasizes group-based strategic decisions likely to be based on best available alternativesImproves employees¶ understanding of the productivity-rewardrelationship

Reduces gaps/overlaps in activities among employees as their participation clarifies differences in roles

Resistance to change is reduced

Risks of Strategic Management

Time involved may negatively impact operationalresponsibilities of managers

Lack of involvement of strategy makers instrategy implementation may result in s h irking of responsibility for strategic decisionsPotential disappointment of employees over

unattained expectations requires managerialtime and training

Implications of t h e StrategicManagement Process

Ch anges in any one component will affect ot h er componentsStrategy formulation and implementation aresequentialNecessity of feedback from institutionalization,review, and evaluation to early stages of process

Need to regard it as dynamic, involving constantch anges in interdependent strategic activities

Core Competencies - Core competencies are t h ose capabilities t h at arecritical to a business ac h ieving competitive advantage.

CoreCoreCompetenciesCompetencies

ValuableValuable RareRare

Costly to ImitateCostly to ImitateNonsubstitutableNonsubstitutable

Sony's core competencies in miniaturisation led to the development of therevolutionary Sony Walkman from radios and now iPod;

Honda's core competencies in engine building shifted their focus from justcars to marine engines, generators and lawn mowers.

Canon defined itself as a specialist in optics, not cameras, which opened theway for its branching into photocopiers and scanners.

Disney ± new characters and stories.

Competitive advantage????

Sustained competitive advantage«..

Wh en strategy can be sustainable

Distinctive capabilities

Tangible- Intellectual property right

L icencesStatutory monopolies

IntangiblesStraong brands

L eadership B usiness process

Reproducible capabilitiesTechnicalFinancialM arketing

examplesW al -mart

Procter & gamble

D istribution ± effective use of logistics management tec h niques

Marketing ± Effective promotion of brand name products.

Minaturisation of components andproducts

Can you answer t h ese?3M corporation

Toyota

Coca cola

Product innovation capabilities

D efect free manufacturing

specialised marketing andmec h andising know- h ow

Superior e-commerce capabilities.

Strategies t h at failed

Sustainable Competitive Advantage

B rand ImprintM aintaining Technological SuperiorityTargeting niche market.Why TIDE When There is ARIE L ??????

Is strategy static or dynamic???????

Look at t h is story««««««««.

W as h ing powder Nirma, W as h ing powder Nirma D ood h si safedi, Nirma se aayeRangeen kapde b h i kh il kh il jaaye

Th e nirma success story of h ow an Indian Entrepreneur took on t h e big MNCsand rewrote t h e rules of business :

It was in 1969 th at D r. Karsanb h ai Patel started Nirma and went on to create a

wh ole new segment in th e Indian domestic detergent market. D uring t h at timeth e domestic detergent market only h ad t h e premium segment and t h ere werevery few companies , mainly t h e MNCs , w h ich were into t h is business.

Karsanb h ai Patel used to make detergent powder in t h e backyard of h is h ouse in

medabad and th

en carry out door to door selling of h

and madeproduct.He gave a money back guarantee wit h every pack t h at was sold.

Karsanb h ai Patel managed to offer h is detergent powder for Rs . 3 per kg wh enth e cheapest detergent at t h at time was Rs .1 3 per kg and so h e was able tosuccessfully target t h e middle and lower middle income segment.

In th e 1980s nirma moved ahead of Surf , a detergent by HLL , to caputre alarge market s h are.Later, Nirma successfully entered in t h e premium segmentof soaps and detergents. Nirma went on to become t h e largest detergent andth e second largest soap company in India. Nirma h ad more t h an 35% markets h are in t h e detergent segment and around 20 % market s h are in t h e toiletsoap segment.T h e company got listed on t h e stock exchanges in th e year

Nirma adopted backward integration strategy for t h e regular supply of raw

materials,90 % of w h ich th ey manufacture t h emselves. Nirma also gave dueimportance to modernization ,expansion and upgradation of th e productionfacilities.T h e company also made sure t h at it uses t h e latest tec h nology andinfrastructure.S abki Pasand Nirma«

Nirma became ah

uge success and all th

is was a result of Karsanbh

ai Patel¶sentrepreneurial skills. Karsanb h ai Patel h ad good knowledge of c h emicalsand h e came up wit h Nirma detergent w h ich was a result of innovativecombination of th e important ingredients.i ndigenous met h od was used ,andalso t h e detergent was more environment friendly. Consumers now h ad aquality detergent powder , h aving an affordable price tag .

Th e process of detergent production was labour intensive and t h is gaveemployment to a large number of people.Nirma focused on cost reductionstrategies to make a place for itself in t h e market.Nirma h as always beenknown for offering quality products at afforbable prices and t h us creatinggood value for t h e consumer¶s money.

The Implicit Strategy Model of the PastDecadeOne ideal competitive position in t h eindustryBenc h marking of all activities andac h ieving best

practiceAggressive outsourcing and partnering togainefficienciesAdvantages rest on a few key successfactors,critical resources, core competenciesFlexibility and rapid responses to all

competitiveand market c h anges

Alternative V iews of StrategySustainable CompetitiveAdvantageUnique competitive position for t h ecompanyActivities tailored to strategyClear trade-offs and c h oices vis-à-vis competitorsCompetitive advantage arisesfrom fit acrossactivities

Sustainability comes from th

eactivity system,not th e partsOperational effectiveness a given

B usiness model

B usiness model is how and why the company¶s product offerings and competitive approacheswill generate a revenue stream and have an associated cost structure that produces attractiveearnings and return on investments.

Company¶s strategy relates broadly to its competitive initiatives and business approaches, whilea company¶s business model deals with whether the revenues and cost flowing from the strategydemonstrates business viability.

A business model describes t h e rationale of h ow an organization creates, delivers,and captures ±value economic, social, or ot h er forms of value.

Th e bait and hook business model (also referred to as t h e " razor andblades business model " or t h e "tied products business model")

This involves offering a basic product at a very low cost, often at a loss (the"bait" ), then charging compensatory recurring amounts for refills or associated products or services (the "hook" ).King Gillette practically gave razors (bait) away & made money onKing Gillette practically gave razors (bait) away & made money on

e blades (h

ook).th

e blades (h

ook).Cell ph ones (bait) and air time ( h ook); computer printers (bait) andink cartridge refills ( h ook); and cameras (bait) and prints ( h ook).

Today¶s versionToday¶s versionof th eof th eRazor & BladeRazor & BladeModelModel

Keep t h e source code h idden, sell t h e OS and software package to PC makers atattractive price, provide tec h nical support at no cost.

LINUX makes own version of open source linux os,

Rely on collabrative effort - gets programmeh

el from all over

H ow do Business ModelsH ow do Business ModelsDiffer from Strategies?Differ from Strategies?

1 .1 . Business models address a series of Business models address a series of broad functions that create value for thebroad functions that create value for thecustomer, rather than activities;customer, rather than activities;

2.2. Business models do not show how anBusiness models do not show how anorganization¶s activities are related, but organization¶s activities are related, but the strategic value chain does;the strategic value chain does;

3.3. Unlike the strategic value chain, businessUnlike the strategic value chain, businessmodels do not address competitivemodels do not address competitiveadvantage.advantage.

Porter notes 3 main differences betweenPorter notes 3 main differences betweenbusiness models and strategies:business models and strategies:

Self service super market model ± cost is lowered by replacing full service retailformat wit h self service format and providing a wider selection of products t h atare sold in a large foot print store t h at contains minimum fixtures and fittings.Th ese saving can be passed on to customers in t h e form of lower prices w h ich in turn grow revenues and h elp t h e company to ac h ieve furt h er cost reductionsfrom economies of scale.

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